It is important to get an IR35 contract review to test your IR35 status and protect your own interests - namely to avoid the financial impact of IR35.
When should you get the contract reviewed?
Ideally, you should get your contract reviewed before you sign it. If you wait until after signing it there will be no opportunity to negotiate your contract for IR35 compliance. This decision alone could cost you thousands of pounds.
If you have signed the contract without review it is still very important to get the contract reviewed to ascertain how you are going to
structure your payments – either inside IR35 (PAYE) or outside IR35 (salary + dividends).
If you have not had previous contracts reviewed and have assumed those contracts were outside IR35 you should get them reviewed as soon as you can.
It is inevitable that they will be challenged during an HMRC investigation and it is strongly advisable that you are both prepared and
protected.
Choosing a professional to review your contracts
Your contract has probably been prepared by a legal business who has taken into account the tax implications of certain clauses.
However, the challenge to your contract will not come from a legal department or a firm of solicitors but HMRC. They are only interested in the
tax implications and whether they consider the contract is one of employment or self-employment.
It is thus important you choose someone to review your contracts for IR35 who has experience of dealing with Revenue investigations and tax cases.
There are law firms who specialise in IR35 and have successfully defended IR35 challenges. There are also ex HMRC tax inspectors with extensive experience who will be able to give expert advice.
Your accountant will certainly be well read on the topic of IR35 and is a good first port of call. However, since they are unlikely to have the depth of experience, knowledge and professional qualifications necessary to give an expert opinion, they will probably refer you to an organisation that does.
The review process
The reviewer will examine a contract and point out any weaknesses which can indicate employment status.
Depending on the results, the contract can be amended to reflect self-employment or highlight the self-employment clauses rather than any
employment clauses.
Note however, that contract must still be a “Live Contract” meaning it must always reflect the true conditions that you are working to. If it isn’t, it
will be ignored by the Revenue.
Any amendments will need to be agreed with the client. There is likely to be some resistance from the agency for the changes to be made. Depending on the strength of your bargaining position will determine the chances of getting the changes made.
After the agency has agreed to negotiate potential changes it is advisable to have the professional negotiate these changes on your behalf.
Updated: Tuesday, January 11, 2011
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